CHAPTER ONE INTRODUCTION 1.1          BACKGROUND TO THE STUDY

Nigeria still presents a clear reflection of the third world economy in which the growing economy has some working machinery, monetary and fiscal policies that are aimed at maintaining a balance of payment in the entire economy so that growth and development, which is the ultimate goal at every economy is realized.

Generally, monetary policy refers to combination of measures designed to regulate the value, supply and cost of money in an economy in consonance with the level of economy activity.

Monetary policy according to Olumechere (2003) is a deliberate effort by the monetary authorities to control supply and credit conditions for the purpose of achieving certain broad economic goals Johnson K. (1999), define monetary policy as policy employing central bank control of the supply of money as an instrument for achieving the objectives of general economic policy.

According to Salvin (2004) monetary policy is the use of open market operations change in discount rate, change in reserve requirement and other measures available to the monetary authorities to control the rate of growth of money supply. He further noted that the goals of monetary policy in the Nigeria context encompasses actions of the central bank of Nigeria that affect the availability and cost of commercial and merchant bank reserve balances and thereby the overall monetary and credit condition in the economy. The main objective of such action is to ensure that over time, the long-run needs of the growing economy are met at stable prices.

The aim of monetary policy are basically to control the inflation maintain a healthy balance of payment positions for the country in order to safeguard the external value of the national currency and promote an adequate and sustainable level of economic growth and development. The formulation is done by the federal government, mostly announced during budget speeches while the enforcement of the policy is solely the responsibility of the central bank of Nigeria (CBN) yearly.

According to Michael P. Todaro and Stephen C. Smith (2011) development is the process of improving the quality of all human lives and capabilities by raising people’s levels of living, self-esteem, and freedom.

In most countries the central bank is saddled with the responsibility of conducting monetary policy. In the case of Nigeria, the responsibility entirely lies with the central of bank Nigeria (CBN). The discretionary control of money stock by the monetary authority involves the expansion or contraction of money, influencing interest rate to make money cheaper of more expensive depending on the prevailing economic situation.

The evaluation of monetary policy, intends to show this macroeconomic policy is formulated and executed in practice particularly in an environment of federal government fiscal dominance and highly liquid banks.

In the course of these project, detailed attention will be paid to monetary policy in which its frame work and implementation will be analyzed and its impact on economic growth in the period of 1996 to 2015.

1.2          STATEMENT OF THE PROBLEM

Over the years, so many instruments of monetary policy have been in vase not to gear-up the level of investment, but unemployment price level fluctuation, lack of sustainable economy growth, balance of payment disequilibrium, inability to mobilize domestic saving and unsatisfactory expansion of domestic output. These have consistently and persistently done severe damage to the Nigeria economy unabated.

It is against this background that the problems of these studies have been identified and they are as follows.

1. a) Are monetary policies effective instrument for economic growth?
2. b) Are there monetary policies to achieve desired objectives and what has been the outcome?
3. c) Is the implementation of monetary policies ideal?
4. d) What factors hinder the full attainment of monetary policy objectives?
5. e) Could there be any remedy to these problems.
6. f) Are there conflicts or relationship between monetary and fiscal policy?

1.3          OBJECTIVE OF THE STUDY

The main objective of the study is to assess the impact of monetary policy on economic growth in Nigeria.

The specific objectives of this study are:

1. i) To assess the impact of money supply on go GDP Nigeria.
2. ii) To determine the impact of liquidity ratio on GDP in Nigeria.

iii)           To ascertain the effect of interest rate on Nigeria’s GDP.

1.4          RESEARCH QUESTION

In course of this research, some questions on the impact of monetary policy on economic growth in Nigeria are going to be investigated,

It is itemized as following:

1. i) What is the impact of money supply on GDP in Nigeria?
2. ii) What are the impacts of liquidity ration on GDP in Nigeria?

iii)           What are the effects of interest rate on Nigeria’s GDP?

1.5          RESEARCH HYPOTHESIS

To effectively achieve the above mentioned objectives we adopt a null hypothesis.

H01: money supply does not have significant impact on G.D.P in Nigeria.

H02: interest rate in Nigeria has no significant impact on G.D.P

H03: liquidity rate in Nigeria has no significant impact on G.D.P

1.6          SIGNIFICANCE OF THE STUDY

The study provides an insight into impact of monetary policy on economic growth. It will therefore be of great benefit to banker’s investment analysis government agencies, academics, private and public sector’s more so, it will be useful to policy makers in the attempt to fashion out dynamic and reliable monetary policy measure for controlling commercial banks ability to create money and thereby influence the effective development of the economy.

1.7          SCOPE AND LIMITATION OF THE STUDY

The economy is a large component with lot of diverse and sometimes complex parts, this study will only focus on the major growth components such as gross domestic product etc. also make the study will cover the entire small empirically investigate the impact of the major one. This shall be restricted to the period between 1995-2015.

The major limitation of the study is that of data in sufficient which makes it impossible for the study adopts a uniform time frame for all the channels. The researcher was financially independent as a student, the need for material trips and logistics needed for this research was not adequately provided and finally time constraints as there was not enough time to carry this research work as he combines same with academic work.

1.8          ORGANIZATION OF THE STUDY

The work is arranged into five chapter, chapter one examines the introduction” we look at the overview, statement, objective, question, hypothesis, scope of limitation of the study, significance of the study, definition of terms.

Chapter two centre’s on the review of literature as regards the topic. It starts with introduction we go therefore into explaining the meaning, objectives and evolution of monetary policy in Nigeria, we also looked at the impact of monetary policy in Nigeria economy growth.

Chapter three is on the research design, population of the study, sampling techniques and model data analysis and model specification.

Chapter four is on data analysis and presenting. Also result was interpreted and further discussing and finding were made on this chapter.

Chapter five is on the summary, conclusion and recommendations.

1.9          DEFINITION OF TERMS

Economic Growth: Udabah, (1999) economic growth is an increase in the capacity of an economy to produce goods and services, compare from and period of time to another.

Economic growth is an increase in the amount of goods and services produced per head of the population over a period of time.

Economic Development: Anyawu,(1994) opined that from a policy perspective, economic development can be defined as effort that seeks to improve the economic well-being and equality of life for community by greatly and/or retaining jobs and supporting or growing incomes and the tax base.

Economic development is the process by which a nation improves the economic, political, and social well-being of its people.

Value:a measure of the benefit that may be gained from goods and services.

Monetary Policy:it is the process by which the monetary authority of a country, like central bank of Nigeria or currency board controls the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency.

Interest: it is a payment from a borrower to a lender of an amount above repayment of principal sum (i.e. the amount borrowed). It is the distinct from a fee which the borrower may pay the lender or some third party.